Financial Insights

Many young adults reading this headline might be hesitant about a seven-step process. The truth is that financial freedom does not come easy. I am not giving you a fast path to financial success, but rather easy first steps to take toward financial independence. These are steps that I have taken in my own life, and though not instant, these steps always lead toward the ultimate financial goal of independence and freedom. I believe that these seven steps can help overcome mental, emotional and even physical barriers that could be preventing you from living your best life financially, so why not join me in taking the first steps toward your financial success?

1. Recognize reality

Before you can take any steps toward a successful financial future, it's important to recognize the reality of where you are now. This reality is going to be different for every person and will change with time. An example of a time when I had to recognize reality was when I moved off the college campus and into my full-time position with Old National. The first reality was additional income, the second equal reality was increased expenses. Did you know that water isn’t free, trash doesn’t disappear from the curb on its own and leaving the light on is expensive? Of course, I’ve always known these things to be true, but as a young professional living completely on my own the reality hit me harder. I realized that the grocery store has higher quality food for less than most restaurants. I realized if I value both my future and present financial independence, the lifestyle I hope to live one day is not the lifestyle I can live today. It is likely that we do not earn the exact same or have the exact same expenses, and that’s ok – but recognize your reality in this moment.

2. Adjust your mindset

If you can recognize your reality, congratulations! You are already heading in the right direction. The next step is adjusting your mindset, which is not any easier than recognizing reality but equally important. A mindset that is becoming more common around my peers, and to be honest even in my own life, is the idea of #YOLO (You Only Live Once). At its core, this idea is good – we only have one shot at life on this earth, but this mindset can quickly become problematic. This mindset often leads people of all ages, but especially young adults, toward frivolous spending and toward extravagance that they are not prepared to pay for.

I think that having a “you only live once” mindset when it comes to money is important- you only have one financial future and one financial now. With that reality recognized, our mindset should shift from maximizing the right now toward planning toward financial wellness for the one life we are given.

3. Create a budget

In a #YOLO world, “budget” is a word that people are often afraid of. I have seen people who avoid budgeting to the point where they don’t even want to say the word! I partially understand where the reluctance comes from. Budgets create structure. They require discipline and sometimes decisions to cut unnecessary expenses. For some, this takes the fun out of a #YOLO world.

For me, a budget simply enables more careful spending and thought about my own values. My budget is like my fingerprint. Nobody else’s is the same, and the print that it leaves behind is unique and truly me. For me, charitable giving is important, so I choose to budget 10% of my income toward donations. After that, I save about 20% of my income and invest around 10% toward my retirement. With my remaining income, I appropriate money for recurring expenses including rent, electricity, water, trash, parking and gas. I then budget money for groceries and food, with my budgeted amount for this likely being higher than that of my peers, because of my choice in stores and products. To counterbalance this, I budget a smaller amount of money toward entertainment, since I choose to cook quality meals at home.

Many of my friends have the opposite budget, and that is the great thing about budgeting. Budgets allow us to live the lifestyle we desire without overspending. A budget enables you to control your money, instead of your money controlling you, and this is not something to take lightly.

4. Don’t gamble on your future

The first three steps have been a little difficult at times, haven’t they? Let’s make the fourth easy – don’t gamble on your future! What I mean by that is to avoid buying lottery tickets or visiting the casino with the goal of striking it rich to pay for past financial mistakes. The odds of winning the lottery are so slim that according to statisticians you are more likely to accidentally suffocate in bed, have quintuplets naturally, or get killed by fireworks than coming out ahead on the lottery. If you want a sure way to strike it rich, set the money aside that you would have played on into an interest-bearing account. In the future, you’ll cash in on your disciplined earnings.

5. Work to become the best

Maybe you want to become the best salesperson or graphic designer at your company. Perhaps you want to take advantage of management trainee programs or other advancement opportunities. When you work harder to become the best at what you do, you become less dispensable to your employer and more attractive to potential employers. Financial wellness is a simple equation that can be solved! Income needs to be more than monthly expenses and planned savings! Since your paycheck tends to reflect the value you provide, there is no better way to increase the left-hand side of the equation (income) than becoming better at what you do.

6. Automate your savings

Opening a savings account (if you don’t already have one) and automating your savings is an important step toward reaching financial goals. I call this “automating the important things.” When I was saving for my first car, I opened and named an account “Car Savings.” When I logged into my online banking, I was able to see my “Car Savings” grow, which motivated me to save more. I arranged with my employer to have part of my paycheck go directly into my savings. Whatever your goal may be, automating your savings can help you to slowly reach a goal, without spending cash that you shouldn't or running up debt.

7. Begin saving for retirement!

The best time to begin saving for your retirement was yesterday, but you can still get started today! Retiring may seem like a long-term goal for many young adults, so I am going to provide an example that shows the power of starting early. Let’s say that I began investing $500 a month in a retirement account at age 25. My friend Keith is 45 and just started investing $1,000 a month. When we each turn 65 we decide to retire. My friend Keith will have $441,427 assuming an annual return of 6%. Assuming the same conditions, I will have $928,572, which is a difference of $487,145!

We both invested $240,000 cash into our retirement plans, but by starting early I will enter retirement with more than double what my friend Keith will have, assuming the market remains constant. There are a few different ways to begin saving for retirement including IRA accounts (Individual Retirement Account), employer sponsored retirement plans and other forms of retirement savings. I always recommend you seek advice from a financial professional that you trust, as you take this important step toward your financial goal.

No matter how far you may feel you are from reaching financial freedom or your financial goal, you can start today by taking these seven steps. If you are not ready to take all seven steps, take a couple, and before you know it you will be farther along on your journey to financial freedom than you imagined.

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Jack is a Registered Real-Life Finance Instructor and Commercial Relationship Manager, Jr. at Old National. A recent college graduate, Jack has more than five years of experience in banking. Partnering with local community agencies including schools and nonprofit organizations, he has taught financial education in over 200 settings. He currently serves on the board of directors for the Jump Start Coalition, promoting financial empowerment and education nationwide. Jack believes financial wellness through financial education should begin at a young age and is the key to future success.

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